Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

(Hop HipldF0AV) #1

taxrates—theeffectivetaxrateforever,themarginaltaxrate
forever, and an approach that combines the two rates.


APPROACH 1: Effective Tax Rate Forever


WefirstestimatethevalueofConvoyassumingthatthetax
rate remains at 20% forever:


Thisvalueisbasedontheimplicitassumptionthatdeferred
taxeswillneverhavetobepaidbythefirm,andthatitcan
continue to defer rates in perpetuity.


APPROACH 2: Marginal Tax Rate Forever


WenextestimatethevalueofConvoyassumingthatthetax
rate is the marginal tax rate of 40% forever:

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